Archive - Jan 2011 - Story

This is the last chart we will dedicate to today's B(L)S non-farm payroll data. It shows nothing less than than just how much of a factor the "seasonal adjustment" has become in every December data series, and is the definitive evidence of why only the most gullible but any credibility in the BLS seasonal adjustment mechanics. Unfortunately far from indicating a one time seasonal adjustment, it is no yet another secular trend policy tool, whose goal is to offset the actual drop in jobs. Indicatively while the number is now well over 2x greater than it was in 2000, the US population has hardly tripled over the past decade, requiring such a dramatic increase in fudge factors.

We have been claiming for almost half a year now that with the policy tool known as stocks now completely irrelevant, the places where traders can still find some Fed-free volatility (for the time being) is in the FX and bond markets. We are confident that in 2011 the MOVE bond vol index will be far more relevant that then the VIX, and that 200 pip daily moves in key FX pairs such as the EURUSD will be a normal occurrence. As validation of the first, just after the NFP number was announced, it was not US stocks, but the massive German treasury market that was halted due to a surge in volatility. This bears repeating: the massive, presumably liquid, and critical sovereign debt market of Europe's biggest economy was halted! We look forward to many more such examples of connected vessels, as computer, robots and the few remaining homo sapiens traders, pursue only modestly manipulated markets in which to trade volatility.

Watch Bernanke sweet-talking his puppets in the Senate Budget Committee live and commercial free after the jump.

We present two takes on the NFP number: first from Knight Capital, and second from most recent entrant in the ridiculous propaganda drama queen race, Goldman Sachs, which is most gladly selling ES as its customers are buying with visions of S&P 1,500 as per David Kostin's latest chartmongery.

The non-seasonally adjusted underemployment rate (U-6), probably the one metric that has the least possible amount of Department of Turh intervention, has come at 16.6%, a jump from 16.3% in November, and the highest since July 2010. It is also the third consecutive month of deterioration, roughly since QE2 started. There goes your economic recovery. But at least quantitative easing is boosting the wealth effect of all those employed (on Wall Street) and adding to the poverty effect of everyone else. In the meantime, can someone please switch the ABC confidence index with the ADP bullshit indicator in terms of data significance?

While today's unemployment number came at a low 9.4%, well below expectations, the one and only reason for this is that the labor force in America has plunged to a fresh 25 year low. Assuming a reversion to the mean in the long-term
average participation rate back to 66%, means that the civilian labor force, which in December came at 153,690, a drop of 260,000 from November,
is in reality 157.6 million, a
delta of 3.91 million currently unaccounted for. Maybe someone can ask Bernanke during his imminent presentation before Congress what happened to the
unemployed population, which would have been 18.4 million if this labor force
delta was incorporated, resulting in an unemployment rate of 11.7%.

Immediate market reaction is not pretty as everyone's completely ridiculous expectation that Barclays' "95% confidence interval" of a 480,000 print ends up being that much hot air.

Summary:

• Change in Private Payrolls (Dec) M/M 113K vs. Exp. 178K (Prev. 50K, Rev. to 79K)
• Change in Manufacturing Payrolls (Dec) M/M 10K vs. Exp. 5K (Prev. -13K, Rev. to -8K)
• US Average Hourly Earnings (Dec) Y/Y 1.8% vs. Exp. 1.8% (Prev. 1.6%)
• US Average Weekly Hours (Dec) M/M 34.3 vs. Exp. 34.3 (Prev. 34.3)
• Labor force participation plunges to multi year low: 64.3%
• 24 thousand added from Birth-Death

From the report:

Goldman's most recently inducted partner David Kostin, who no doubt promised to make his superiors proud for promoting him, just did so this morning. The chartist has just told all clients to sell everything that Goldman is offering as Goldman has just revised its year end S&P target fo 1,500 on expectations of what we believe translates to a priced to absolute perfection, Goldilocks centrally planned economy, where Bernanke finally succeeds where he and his predecessors have failed every single time before. As an aside, and as empirically proven, those who take the other side of the Goldman sell-side trade (i.e., the same side as the Goldman prop trade, as after all it is Goldman which is selling whatever clients are buying) end up making money the majority of the time in the long-run. Keep that in mind as the S&P fails to hit the revised S&P target in 358 days.

Quite a bevy of news overnight, but the entire world is looking for just one big, and very much seasonally adjusted, catalyst.

Payroll day to start, followed by Chairman Bernanke’s first congressional testimony of the year and some fresh data on consumer credit later in the day….And of course, POMO

Behold your Wall Street marionettes at work: instead of focusing on what is actually important for the survival of the middle class, what has a chance of actually reducing the now $14+ trillion in debt, and has a chance of actually passing, the Congressional pissing match is back, and while guaranteed to have absolutely no impact, will result in a lot of sound and fury signifying not only nothing, but just what a posse of jokers represent this country's wealthiest social strata, if nobody else. Because who cares that, as Ron Paul made all too clear, America is now beyond bankrupt: let's spend a few weeks debating a moot point, all the while Rome burns, the violins on the Titanic deck hit a crescendo, Wall Street accrues another record bonus year, and the politicos collect indulgences from their Fed subsidiary masters.

Following in the footsteps of the recent fireworks of the Chinese SHIBOR market courtesy of the evaporation of virtually all interbank liquidity, we now get more indications that all is fine... no inverted... no fine in China. Per Bloomberg, Chinese corporate spreads have now inverted to a level not seen since pre-Lehman days: "The average yield on yuan corporate debt maturing after 2025 was 4.67 percent in December, compared with 4.97 percent for three to five-year bonds, according to Bank of America Merrill Lynch’s China credit indexes. The last time the gap was wider was on Aug. 13, 2008, when the spread reached 31 basis points, or 0.31 percentage point." And while corporate bond issuance in China, especially on the longer end, is still very scarce (and a reason why China still does not have a representative CDS market, something that JPM will fix promptly), this should be an indication that either things are very good or starting to get rather bad, as more are "rushing" to the safety of near-term fixed income on concerns of what may happen to the long end in the next few months.

The US Congress is welcoming 112 new members this week. Congratulations, if you’re on of them. Now get this through your thick, newbie head. No one likes you. No one thinks you’re smart. Chances are you got the only reason you got this gig is because your predecessor couldn’t follow simple instructions. So stop thinking of yourself as a champion of __________ or the protector of _________. You’re hired help, nothing more, nothing less.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 07/01/11

One look at the M2 chart below shows that the reliquification of the market by the Fed is proceeding according to plan: having increased for 23 of the past 25 weeks, the M2 has hit another all time high in the final week of 2010 at $8,848 billion, a $14 billion weekly increase, and a $316 billion annual increase (we will present the M2 constituents change next week). But that is not all: more important to those who believe that the Fed merely creates one and zeroes that never do anything practical, and most certainly do not add to inflation, will be delighted to learn that in addition to the $14 billion increase in M2 liquidity, reserve balances added another $26 billion in liquidity, as the absolute number declined from $1027 billion to $1001, or a gross addition of $40 billion in the week. Of course, adding a few leverage factors, and the last week of 2010 saw a gross liquidity addition of well over $100 billion or so. And there are some who wonder why stocks surged to close the year....